Depreciation Calculator

Most small-business owners end up running two depreciation methods in parallel without realizing it — an accelerated one on the tax return to front-load the write-off, and straight-line on the internal books because it keeps the income statement readable. The formulas vary by method. Straight-line is cost minus salvage divided by useful life. Declining balance is the remaining book value times 200%/life each year with an automatic switchover to straight-line once that produces a larger number. MACRS is cost multiplied by the year's fixed percentage from IRS Publication 946 Table A-1 — the IRS picks useful life and salvage for you and you do not get to argue. Units of production is cost minus salvage divided by total expected units, times units produced this period. The calculator runs all four on the same asset so you can see the gap between what lands on the tax return and what shows up on the books.

Straight-line is what accountants reach for when the asset wears evenly and the goal is a clean income statement that matches expense to the period the asset earns revenue. Accelerated methods (declining balance and MACRS) front-load the deduction, which is what business owners want on the tax return because a bigger early write-off shifts cash out of taxes and back into the business. The practical split most small companies land on is accelerated for taxes, straight-line for book/financial statements, and the gap between the two numbers shows up as a deferred tax item on the balance sheet. That is not a loophole — it is the standard reason book income and taxable income rarely match, and the IRS expects the reconciliation on Schedule M-1 of Form 1120 or 1065.

MACRS is the Modified Accelerated Cost Recovery System, the depreciation method the IRS has required for most business property placed in service after 1986. Under the General Depreciation System the recovery period and annual percentages are fixed by property class — autos, computers, and office equipment run 5 years; furniture, fixtures, and most tools run 7 years; fruit-bearing trees run 10 years; land improvements run 15 years. Half-year convention applies by default, which is why the first and last years show smaller percentages than the middle. You do not get to pick a useful life and salvage value with MACRS the way you do with book depreciation; the tables published in IRS Publication 946 Table A-1 are the schedule, full stop.

The quick version of the IRS property classes covers 90% of small-business purchases: autos, light trucks, computers, and office electronics run on the 5-year schedule, while furniture, fixtures, and most tools run on 7-year. When nothing on the IRS list fits cleanly, 7-year is the default fallback — that is literally what the Form 4562 instructions say to do. The calculator's MACRS dropdown spells out each class with the common property examples already attached, pulled straight from those instructions, so you do not have to memorize the list.

Most small-business owners assume Section 179 and bonus depreciation do the same thing, so they pick one and skip the other — that is the mistake. The two stack, and the stacking order matters. Section 179 runs first at a $2,560,000 cap for 2026 (up from $2,500,000 in 2025) with phase-out starting at $4,090,000 of qualifying property. Whatever basis is left absorbs bonus depreciation, which reset to 100% for property acquired after January 19, 2025 per IRS Publication 946. Whatever is still left runs through the normal MACRS percentage table. On a $50,000 piece of 5-year equipment the practical effect is full year-one expensing. The reason tax planners still model all three lanes separately is that Section 179 gets capped by taxable business income while bonus does not — which is exactly the corner case that matters in a low-profit year.

Most equipment purchases that look like a wash at sale time actually generate a tax bill the owner did not see coming, and book value is the reference number that predicts it. Book value is what is left of original cost after accumulated depreciation subtracts off every year. Sell above book value and the gap is either ordinary income (depreciation recapture under Section 1245 for most equipment) or capital gain, depending on holding period and property type. Sell below book value and the shortfall is an ordinary loss. The calculator shows book value at every year-end of the schedule specifically because it is the number that predicts the recapture bill — and that recapture math is where most owners get surprised on the way out the door.